Mortgage Brokers: Advantages and Disadvantages (2024)

• Working with a mortgage broker can potentially save you time, effort, and money.
• A mortgage broker may have better and more access to lenders than you have.
• However, a broker's interests may not be aligned with your own.
• You may get a better deal on a loan by dealing directly with lenders.
• When you meet with possible mortgage brokers, ask them to detail how they'll help you, all their fees, the lenders they work with, and their experience in the business.

Advantages

A Broker May Save You Legwork

Mortgage brokers have regular contact with a wide variety of lenders, some of whom you may not even know about. They also can steer you away from certain lenders with onerous payment terms buried in their mortgage contracts.

That said, it is beneficial to do some research of your own before meeting with a broker. An easy way to quickly get a sense of the average rates available for the type of mortgage you're applying for is to search rates online. Then use an online mortgage calculator to calculate loan details. Tools like this let you compare rates easily and provide you with extra knowledge when assessing a mortgage broker's credibility.

A Broker May Have Better Access

You may not be able to contact certain lenders directly to get a retail mortgage. That's because some work exclusively with mortgage brokers and rely on them to bring them suitable clients. Brokers may also be able to get rates from lenders that might be lower than what you can get on your own due to the volume of business they generate for a lender.

A Broker May Be Able to Manage Your Fees

Several different types of fees can be involved in taking on a new mortgage or working with a new lender. These include origination fees, application fees, and appraisal fees. In some cases, mortgage brokers may be able to get lenders to waive some or all of these fees, which can save you hundreds to thousands of dollars.

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Disadvantages

A Broker May Not Source the Best Deal for You

Many home buyers simply assume that a broker can deliver a better deal than they could get on their own, but this is not always the case. Some lenders may offer home buyers the very same terms and rates that they offer mortgage brokers (sometimes, even better).

It never hurts to shop around on your own to see if your broker is really offering you a great deal. As mentioned earlier, using a mortgage calculator is an easy way to fact check whether you can find better options.

You May Owe a Broker Fee

Mortgage brokers are paid either by the lender or by you. If the fee is covered by the lender, you need to be concerned about whether you'll be steered to a more expensive loan because the commission to the broker is more lucrative. If you pay the fee, figure it into the mortgage costs before deciding how good a deal you are getting. And be sure to settle all fee issues upfront before you start working with a broker or sign anything.

Brokers Often Do Not Guarantee Estimates

When a mortgage broker first presents you with offers from lenders, they often use the term good faith estimate. This means that the broker believes that the offer will embody the final terms of the deal. However, this isn't always the case. In some instances, the lender may change the terms based on your actual application, and you could end up paying a higher rate or additional fees.

Some Lenders Do Not Work With Mortgage Brokers

This is an increasing trend since 2008, as some lenders found that broker-originated mortgages were more likely to go into default than those sourced through direct lending. By working through a broker, you may not have access to these lenders, some of whom may be able to offer you better mortgage terms than you can get through the broker.

The Bottom Line

Do you need a mortgage broker? Well, working with one can save a borrower time and effort during the application process, and potentially a lot of money over the life of the loan.

In addition, some lenders work exclusively with mortgage brokers. That means that borrowers get access to loans that would otherwise not be available to them. What's more, brokers can get lenders to waive application,appraisal, origination, and other fees.

It's critical to examine all the fees, including those you might have to pay the broker, those you may owe the lender, and any fees the broker can help you avoid. Looking at all the pros and cons of using a mortgage broker can help you make your decision about whether you need one.